Archive for the ‘Tax Fraud’ Category

Phony Donations Yield Real Tax Evasion and Tax Fraud

Thursday, July 23rd, 2020

Have I got a deal for you! You can give me a donation of, say, $500,000, and I’ll give you $450,000 back! Yet get a write-off on your tax return for all $500,000 but you really only spent $50,000. Isn’t that great?

Yes, if it were legal it would be super. But it’s not, and the story here is one that apparently spans decades, involves an unrelated shooting incident that stunned the nation, and a still ongoing investigation into others.

Yisroel Goldstein is the former director at Chabad of Poway (California). You may remember that name from the horrible shooting that occurred at his synagogue in April 2019. Rabbi Goldstein lost parts of his hand in the shooting. One congregant was killed and two others were injured in the attack. After the shooting Rabbi Goldstein met with President Trump at the White House and Vice President Pence visited the synagogue.

But what we didn’t know was that the IRS and Department of Justice had been investigating the rabbi for two years preceding the shooting. So what was the fraud?

It’s a scheme known as the 90-10 fraud. Rabbi Goldtein collected $6.2 million in donations. He returned 90% of that to the donors with phony receipts; meanwhile, he kept 10% (or around $620,000) for himself. That resulted in a tax loss of $1.5 million over the last 8 years. That’s bad, but the scheme actually dates back decades: One taxpayer began participating in this scheme in the 1980s!

Rabbi Goldstein pleaded guilty last week, along with five other individuals. Given that at least 20 taxpayers total were involved in this (and only six have pleaded), it’s quite possible more indictments are coming. Rabbi Goldstein is cooperating with the IRS and Department of Justice in the ongoing investigation.

The DOJ is expected to recommend that Rabbi Goldstein be sentenced to probation because of his work in the shooting. The five others benefited with phony deductions and one conducted his own Ponzi scheme. All six have agreed to pay restitution.

There is no free lunch as far as making donations. If you donate to a church or synagogue, you actually have to donate the funds; kickback of the money is not allowed.

Nothing for Something

Wednesday, November 21st, 2018

Have I got a deal for you! (It is, after all, the Holiday Season where we’re all looking for deals, right?) I can take your assets and hide them from anyone and everyone! Simply form one of my special Nevada Corporations, and, well:

Camouflaging your assets is the first step in implementing any asset protection plan. Remember, if a federal judge can find an asset, he can seize it. Conversely what he can’t find, or doesn’t know about, he can’t touch. Although I enjoy advertising bulletproof asset protection, the prescription for making an asset bulletproof is first to make it invisible.

And I also offer a hidden bank account program! With my new vanishing bank accounts, you have access to your money but nobody else does! No more worries from the government, or anyone else. The whole program retails for just under $10,000, and there are multi-level marketing opportunities, too! Who can refuse?

All of the above is what one Las Vegas man, Richard Neiswonger, offered through his Asset Protection Group, Inc. Back in 2011 he was indicted on various tax fraud charges. He was sentenced last week to 22 months at ClubFed and must make restitution to the IRS of $3,212,078.

This wasn’t Mr. Neiswonger’s first brush with the US government. The FTC had obtained an injunction against Asset Protection Group, but that didn’t stop them. The US Attorney’s office had requested another injunction in 2007. The sentencing press release details Mr. Neiswonger’s activities:

From 1999 to mid-2006, Neiswonger, who was imprisoned, and his business partner, formed Asset Protection Group, Inc. (APG) in Nevada in late 1998. Neiswonger, along with his business partner and a certified public accountant, conspired to promote false and misleading business information. Consumers would purchase the APG “asset protection” program for typically $9,800 and become APG “consultants,” who would sell “asset protection” services to clients who wished to conceal assets from potential litigants and creditors, as well as government agencies. The service allowed clients to place funds in bank accounts in the name of nominee entities that could never be traced back to the clients themselves. In turn, APG “consultants” received a portion of the client’s fees. These nominee entity accounts and other fraudulent conveyances, such as so called “friendly liens,” were used to divert and hide income from the IRS. Over 70 APG clients using the APG system had collective IRS liabilities totaling approximately $14 million.

Mr. Neiswonger not only hid others from the IRS, he hid $1 million through his attorney from the IRS.

A helpful hint to those reading this: It’s far, far simpler and easier to simply pay what you owe to the IRS. The scheme that Asset Protection Group offered was just that: an illegal scheme. Mr. Neiswonger did enjoy the fruits of his labors for a few years, but in the end he has to disgorge what he made and gets an almost two-year trip to ClubFed.

A helpful hint to those reading this: Don’t do this!

Bozo Tax Tip #8: Publicize Your Tax Crimes on Social Media!

Wednesday, April 4th, 2018

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

“celebritytaxguy” Soon to be at ClubFed

Sunday, June 18th, 2017

Michael Joseph Calalang Cabuhat had been living the good life. He had a nice house in the Hollywood Hills (of Los Angeles) and drove a Ferrari 360 Spider. Mr. Cabuhat owned a tax practice in Glendale (near Los Angeles) and called himself “celebritytaxguy.”

I will be the first to state that you can make a nice living from a tax practice. Mr. Cabuhat’s methods, though, were on the illegal side. He pleaded guilty to defrauding clients of more than $1.2 million, and will have 46 months at ClubFed to think that over. He also must make restitution of $1,496,416 and will be sending the government just over $426,000 from the sale of his home (and the car).

What did Mr. Cabuhat do? He had two methods of bilking clients but they all had a basis in preparing two returns for each client (and I’m not talking about state returns). In some cases Mr. Cabuhat prepared a return showing a small refund, and gave that return to the client. The small refund amount was duly deposited into the client’s account. However, the actual return filed with the IRS showed a larger refund, with that extra amount being deposited into a bank account controlled by Mr. Cabuhat.

His other method was to prepare a return showing an amount due; however, the return filed with the IRS showed a refund (with that refund being deposited into his account). He also had the clients make the tax payment to him, so that those funds, too, would be absconded.

And of course, Mr. Cabuhat didn’t report the $1.2 million he pocketed from the fraud on his own tax return. And, yes, Mr. Cabuhat had a license from the California Tax Education Council (all California tax professionals are required to have a license, either be an EA, CPA, attorney, or obtain the license from CTEC). As I’ve said before, having a license won’t stop tax preparers from committing crimes.

As for the crime itself, it was guaranteed to be discovered in the long run. Sooner or later a client would be audited or obtain a transcript of his return, and it wouldn’t match the return copy that the client had. Or even the IRS might wonder why 150 tax refunds were all deposited into the same bank account.

As noted in the press release from the Department of Justice,

…Judge Walter said Cabuhat’s scheme was “vicious” because it led to both financial and emotional harm to his victim-clients. Judge Walter noted that the stolen money was used simply to enhance Cabuhat’s lifestyle, allowing him to obtain a big house and a fancy car “all on the backs of these individuals who placed their trust” in Cabuhat.

Mr. Cabuhat will have nearly four years to think this all over.

How to Go to Jail

Wednesday, December 14th, 2016

A few years ago, Steven Martinez won the coveted (not really) Tax Offender of the Year Award. His scheme was to tell clients that they had an amount due to the IRS and California. He then prepared a second set of tax returns showing a lesser amount due (or a small refund). He had his clients make checks out to his “client trust account.” He filed the second set of tax returns, and pocketed the difference. (He won the Tax Offender of the Year Award for hiring a hit man after his scheme was uncovered.) A New Jersey woman copied Mr. Martinez’s scheme (less the hit man, thankfully) with the expected result.

Doreen Gentile ran an accounting and tax practice in Toms River, New Jersey. As the Department of Justice press release notes,

Gentile admitted that as part of her scheme, she would show her clients a tax return that indicated that they had no tax or refund due, owed a minimal amount of tax, or were due a refund that was far less than the amount to which they were entitled. Gentile then prepared a second set of tax returns, signed without her clients’ permission, that she submitted to the IRS or the State of New Jersey for the full tax refund.

This was not a brilliant scheme by Ms. Gentile. Sooner or later one of her clients would be audited, or the client would obtain a transcript on their own; the return that was filed wouldn’t match their copy of the return. Indeed, inevitably this crime would be discovered and so it was. Ms. Gentile was indicted in 2014 and pleaded guilty to mail fraud and filing a false income tax return last year (she also didn’t include all of her income on her tax return—yes, the funds that were stolen were taxable income to her). She was sentenced earlier today to 37 months at ClubFed; she must also make restitution of $1,863,013.

Won’t Be Getting Off for a Dime

Sunday, December 4th, 2016

Sreedhar Potarazu is apparently very intelligent. He’s an ophthalmic surgeon in Potomoc, Maryland. He’s also an entrepreneur and an author. He’s also likely to be spending a few years at ClubFed.

Dr. Potarazu formed VitalSpring Technologies, Inc., in 2000. Based in McLean, Virginia, the company provided software that purportedly helped to lower costs and improved service quality for health care. VitalSpring changed its name to Enziime LLC late in 2015.

Companies that grow need money, and that was the case for VitalSpring/Enziime. Dr. Portarazu started to skip paying employment taxes to the IRS. As we’ve said before and we’ll say again, if you want to be investigated by the IRS stop making payroll tax deposits; as best as we can tell, the IRS investigates 100% of such failures. Dr. Porarazu started to not fully pay his employment taxes in 2007. From the DOJ Press Release:

In all but one quarter between the first quarter of 2007 and the last quarter of 2011, as well as the second and third quarters of 2015, Potarazu failed to file VitalSpring’s Employer’s Quarterly Federal Tax Return (Forms 941) with the IRS. Potarazu also failed to pay over any of the employment tax withheld from VitalSpring’s employees’ wages in all but one quarter between the second quarter of 2007 and the third quarter of 2011, as well as the third and fourth quarters of 2015.

Not filing employment tax forms (Form 941) won’t stop the IRS from investigating. Once an employee files his income tax return and shows the withholding of federal income tax and the IRS can’t find that withholding, an investigation is guaranteed. The IRS interviewed Dr. Potarazu in 2011 and let him know of the liability (which he apparently already knew about). The employment tax liability totaled $7.5 million.

So the company needed money. There are several good strategies in such a situation: Making a payment plan with the IRS and slowing down growth so the need for money lessens are two that immediately come to mind. Dr. Potarazu raised $32 million from 2009 through 2016. Since the company wasn’t turning a profit, investors needed reassurances about the business. It’s how he raised the money that caused the problems:

Potarazu induced investments from shareholders by making false representations, concealing material facts, and telling deceptive half-truths about VitalSpring’s financial condition, tax compliance, and alleged imminent sale. Potarazu also caused someone to pose as a representative of a prospective buyer on shareholder conference calls to add legitimacy to his claims regarding VitalSpring’s imminent sale.

VitalSpring had not generated a profit since 2009. Nonetheless, Potarazu falsely represented to shareholders that VitalSpring’s financial position and profitability was improving from 2009 to 2015, and that VitalSpring had millions of dollars in cash reserves. To support his scheme, Potarazu presented fake bank statements to some shareholders that showed inflated balances.

Potarazu also concealed from shareholders that VitalSpring owed substantial employment tax to the IRS. Potarazu provided or caused to be provided false corporate income tax returns to some shareholders that overstated VitalSpring’s income and omitted the accruing employment tax liability.

Committing fraud to investors is not a good strategy. And doubling down on it will make things worse:

In November 2014, Potarazu created a Special Review Committee (SRC) in response to a lawsuit filed in Delaware by shareholders that claimed Potarazu misled the victim investors about VitalSpring’s finances, the status of the impending sale, and Potarazu’s compensation. Potarazu provided the SRC with false financial records, fake tax returns, and fake bank statements to induce the SRC to believe that VitalSpring was financially healthy and to cause the SRC to make materially false representations to the Delaware court and victim investors. He also falsely represented that the alleged imminent sale would yield substantial returns to the shareholders, and used this to induce additional investments. Members of the SRC traveled interstate to the Eastern District of Virginia to attend meetings in which Potarazu presented false information for their review.

There was no sale pending. Dr. Potarazu even made up emails from a purported bank employee and provided a buyer with a link to a phony website. And he used some of the money from investors for his personal use.

Dr. Potarazu pleaded guilty to inducing interstate travel to commit a fraud and failing to account for and pay over employment taxes. He’ll be sentenced next year and will likely have plenty of time at ClubFed to write a second book.

Stealing From the Disabled Worked…For a While

Sunday, October 30th, 2016

Virginia and Derma Miller, mother and daughter, had a good thing going. They took identities of the physically and mentally disabled and filed tax returns on their behalf. Of course, those returns all had refunds, with those refunds finding their way to the Millers.

All was well and good for the Millers until the IRS discovered the scheme. Earlier this year the Millers were tried and found guilty of conspiracy to steal tax refunds and aggravated identity theft. Virginia Miller had earlier been sentenced to 61 months at ClubFed; Derma Miller received seven years at ClubFed last week. Derma Miller must also make restitution of $493,697, the proceeds of her ill-gotten gains.

While I have nothing but kudos to the IRS and Department of Justice in putting the Millers behind bars, I still believe that the IRS is far more reactionary to the problem of identity theft than creating positive actions. Next season’s mandatory interviews of taxpayers claiming the Earned Income Credit, the Child Tax Credit, and the American Opportunity Credit will not stop dishonest tax professionals from committing identity theft related crime. After all, identity theft is already a crime; if you’re going to commit one felony what’s the harm of committing another.

The Tax King Goes to Prison

Wednesday, September 14th, 2016

The Tax King—at least, the St. Louis version thereof—is heading to ClubFed. Eyob Tilahun owned the Tax King tax preparation firm in the St. Louis area. He wasn’t charging low prices; his typical fee was $400 to $650. And he asked for tips of $100 to $1000. Sounds like a good business model to me.

Of course, I didn’t mention the other things he did. Let’s head back to the DOJ press release from May:

In the pleading guilty today, Tilahun admitted that Tax King’s return preparers were trained and instructed to increase their customers’ refunds by falsifying certain information on their tax returns. The false information that was placed on the returns included: (1) false Business Income and Schedules Cs which caused the clients to qualify for larger Earned Income Credits (“EICs”); (2) false wages, which again caused the clients to qualify for larger EICs; (3) false education expenses which enabled the clients to qualify for American opportunity education credits; and (4) false information regarding fuel taxes which qualified the clients for federal fuel tax credits.

I think I’ve talked about how all these credits can be used for fraud in the past. Congress might want to consider not having so many tax credits…but I’m likely talking to the converted.

Well, sentencing came up last Friday. Mr. Tilahun will have 38 months at ClubFed to think things over. He’ll also have to make restitution of something over $2 million. Maybe that’s why I haven’t embraced this business model.

For individuals shopping tax professionals, remember that if it sounds too good to be true it probably is. If you make a lot of money, you’re likely going to pay a lot in tax. There is no tax fairy to make your taxes go away.

Once Bitten, Twice Not Shy

Monday, September 5th, 2016

Back in 2013, Cedric K. Oliphant was convicted of falsifying a tax return.

Specifically, during his plea hearing today [August 30, 2013], Oliphant admitted he knowingly and willfully included materially false deductions for gifts to charity and for unreimbursed business expenses a client’s 2007 tax return. This tax return alone caused a loss to the U.S. Treasury in the approximate amount of $11,261.

Oliphant also admitted he had knowingly and willfully prepared and filed dozens more false federal income tax returns for other clients for tax years 2006 through 2008 that generated excessive refunds and cause aggregate losses to the IRS of totaling approximately $325,000.

Mr. Oliphant was released on bond awaiting sentencing. A condition of his release was that he stop preparing tax returns. I’m sure you’re ahead of me.

He was sentenced back in 2014:

In handing down the sentence today, Judge Harmon noted that Oliphant had prepared hundreds more tax returns with deductions similar to those described in the plea agreement indicating that actual losses to the National Treasury could be as much as $1 million.

Oliphant had been previously released on bond. However, that bond was revoked when it was determined he violated the conditions of his release by continuing to prepare tax returns after conviction. At that bond hearing on April 10, 2014, evidence demonstrated Oliphant had prepared and electronically filed at least 463 client tax returns during the 2014 filing season.

Fast forward to August 26, 2016 (just a week or so ago); Mr. Oliphant was released from prison. Mr. Oliphant’s troubles apparently weren’t behind him. Remember the accusation of preparing returns when he shouldn’t have been? The US Department of Justice alleges it was quite a bit more than that.

Oliphant had been previously charged and later convicted of preparing dozens of false 2006-08 client tax returns as part of his business – Oliphant Tax Services. He had been permitted to remain on bond during that time under a condition that he have no involvement in the preparation of tax returns other than his own. However, according to the new indictment, Oliphant continued to claim the same false deductions for unsuspecting clients while awaiting sentencing on the previous case.

As part of the scheme, the indictment alleges he changed the name of business to “Tax Services” to allegedly make it appear he had stopped preparing client tax returns and that someone else was the owner of his tax preparation business. Oliphant allegedly attributed the fees to the nominal owner of his tax office but manipulated those tax returns to make it appear the tax office had produced almost no taxable income.

But that’s not all. Mr. Oliphant allegedly used nominees to conceal what was going on:

The indictment also alleges Oliphant established a series of bank accounts in the names of others – including minors with custodians other than himself – so the fees could first be deposited to accounts in the names of the nominal owner of his tax office and others. He then allegedly transferred those fees through these intermediate accounts to accounts in his own name. This scheme enabled Oliphant to conceal his personal use of the fees generated by the business during the course of the prosecution on the first case, according to the charges.

The business allegedly generated $2 million in fees and a total loss to the IRS of another $400,000 or more as charged in the new indictment. As part of the his plea agreement in the earlier case, the losses from those false tax returns exceeded $325,000.

If you sign an agreement not to do something—especially if that agreement is with the government—it’s a very good idea to not do that something. And if you do that something, it’s a good idea to be on the up and up; you know you’re being watched. If these allegations are true, Mr. Oliphant might be heading right back to ClubFed.

Identity Thief Gets 17 1/2 Years

Sunday, June 12th, 2016

Frantz Pierre, formerly of Parkland, Florida but soon to be residing at ClubFed, was sentenced last week to 210 months at ClubFed and must make restitution of $906,556. What did he do? I’ll let the Department of Justice press release tell the story:

According documents filed in court, from July 2010 through May 2011, PIERRE was the leader and organizer of a scheme to steal from the federal government by filling hundreds of fraudulent income tax returns. PIERRE and his co-conspirators used stolen social security numbers and other personal identifiers as well as fabricated employment and income information to complete hundreds of income tax returns and to claim millions of dollars in fraudulent tax refunds.

According to documents filed in court, as part of the scheme, PIERRE and his co-conspirators would establish fictitious tax preparation businesses and then open multiple bank accounts in the names of the fictitious businesses. In addition, PIERRE directed the IRS to deposit the fraudulently obtained income tax refunds into the bank accounts set up by the defendant and his co-conspirators. In total, PIERRE and his co-conspirators submitted approximately 776 fraudulent tax returns to the IRS, resulting in $5,249,935 in tax refunds to be deposited into the fictitious companies’ bank accounts.

There’s not much to add here. I’m glad to see crooks like this get very lengthy terms. Identity theft is miserable for the victims, and many victims did nothing wrong and are victimized. Now, if the IRS could start fully assisting victims instead of putting them through the wringer….